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Monday, February 15, 2016

The New Rules of Retail and Game Store Websites

After my solicitation last week, Steve M. of Chandler asked about my thoughts on the importance a customer-facing website for the store. In answering that, I have a fairly ideal tie-in to a book review article I have been meaning to write about "The New Rules of Retail" by Robin Lewis and Michael Dart, which I recently finished reading.

In The New Rules of Retail, Lewis and Dart posit a division of the history of modern retail into four eras, or "Waves." Wave 1 was the Sears-Roebuck Catalog and early mail-order. Wave 2 came after World War II and tracked the boom of mall shopping centers in the suburbs: think Montgomery Ward, JCPenney, Dillard's, Mervyn's, Village Inn. Wave 3 arrived with the 1990s and the big-box "category killer" stores' ascendance: Wal-Mart, Target, Best Buy, Borders, Circuit City, Applebee's. Wave 4 is what we've just recently entered. Lewis and Dart argue that Wave 4 dispenses with the traditional manufacturing-distribution-retail model and brings us to a world of brands, with each brand having near-total vertical control over its delivery chain and market aggregators like Amazon providing the mechanical vector. Think Apple Store, Abercrombie & Fitch, LEGO Store, Disney Store, Panera Bread, Starbucks.

In Wave 4, Lewis and Dart explain, a retailer can no longer count on merely being the point of delivery for a product and profiting thereby. Instead, shopping has to be a sensory and emotional experience. (You can probably tell already that I'm rolling my autism-spectrum eyes at that proclamation, but read on.) A customer has to make a neurological connection to the brand and what it represents, and then it's just follow-through on the retail end. Lewis and Dart make a compelling argument that the perpetual connectivity that smartphones make possible has become the key to disintermediation from the product chain, for which a value chain of (largely) service arises. And where there's no experience involved, a consumer simply orders up what they want on Prime and it's at their doorstep in a few hours, and retail is no longer involved.

So, do I think Lewis and Dart are right? To a significant degree, I think they are, and that makes The New Rules of Retail a wise read for small retailers. Their arguments ring true, even if I don't think they apply to every industry. Try ordering a set of tires on eBay and see how that experience pans out for you. But for most retail it's on point. The comic and hobby game trade is still antiquated in many respects, so we're mostly not ready for Wave 4 even though the consumer is dragging us kicking and screaming in that direction.

I try to look at things in a fairly libertarian perspective where Amazon and disintermediation is concerned. Many game retailers hate Amazon or see them as a necessary "frenemy," because Amazon routinely obliterates many stores' ability to earn sustainable margins on the sale of goods. And remember, nobody is getting rich in this trade. We're just trying to feed our families. I look at Amazon and rather than wasting time being upset about it, I find a way that I can compete. For some categories, such as board games, RPGs, and miniatures, I price-match Amazon. The end. I gambled that the volume increase would overwhelm the marginal loss. While I am still in the process of assessing our data gathered from that, the verdict so far is that it was the correct move, but only incrementally so. It may be that most of the value that DSG garners from price-matching Amazon comes in the form of customer retention and ancillary sales, rather than pure volume on the loss leaders. And in some cases, publishers actively protect their brands and the price-match is not as painful, such as with Games Workshop. In either case, when I have a new customer in the store, meaning some sort of advertising or other promotional expense generated an arrival, there is always some sales resistance, and it just melts away when they see the Amazon Prime price-matching signs or a staff member mentions it to them. We convert the sale dependably. It's no longer a question of whether the customer will make a purchase, but how much they will be purchasing. As a business, this is not a bad place to be.

Store owners in some regions have been able to build and execute on the "sensory and emotional experience" plan. Stores in liberal coastal enclaves seem able to collect MSRP routinely, on the promise of a tight-knit community and a Third Place and social leverage. One store in the upper midwest blitzes the entire "sensory" aspect with events like bacon breakfasts for Magic prereleases and hands-on open play days for area schoolchildren. Here in the Pacific Southwest, it's a little less feasible to do those things. Half of everyone who lives here came from somewhere else, and our geography is the very definition of "sprawl." There isn't much "community" and social leverage is meaningless, and Amazon has a dominant market presence here. I'm left with leveraging the power of the Third Place by facilitating well-run events, especially for those games where the players feel like second-class citizens at the Magic-dependent stores. At DSG, everybody's favorite game is worthy of our attention. (Except Yu-Gi-Oh.) And then I bolster that with a strong selection and reasonably competitive pricing and we have a winning formula. A formula that will only get better as I expand into greater facility space in the year ahead.

Creating a Third Place like this means close integration on social media, where the web-connected public now dwells. So far in 2016, 100% of our advertising dollars have been spent on Facebook. That won't stay true, because we have some convention appearances ahead. But I can't emphasize enough how the nexus of online connectivity has shifted to social media. DSG uses Facebook, Twitter, and (obviously) Google Plus/Blogger/Calendar. For the time being that's it, we've made no push into the reaches of Instagram or Pinterest, though the latter seems like it might be untapped territory if we can emphasize our miniatures modeling and crafting. Every member of the staff except one is on Facebook, and that one is deeply involved in other channels. Virtually all our customer contact comes from social media. Our website records a tiny fraction of the daily hits that even one of our less popular Facebook posts earns.

So what about that website? Here is what it looks like right now:

With our RMS migration very close to switching over, we're just running the GoDaddy template site. It is extremely rudimentary. But it is really all it needs to be. People can find the store's address, telephone number, or social media links from here. They can even see the event calendar, though I really wish there was better Facebook integration on the Google Calendar (rather than the IP link that smartphones don't always render reliably).

Nobody is going to participate in a message board on our website. They have social media. People like to interact, to be active in consuming content, not to have it fed to them. Social media again fits this usage pattern better than the conventional web. Beyond basic information, the primary utility of a comic or game store's website, then, is e-commerce... and it comes up even more wanting in that analysis.

If you're a retailer, everyone says you need to focus on selling online, but I no longer take that as a given, and experience backs me up on this. Primarily, of course, an in-person sale is virtually always preferred due to the lowest possible transactional costs. But more than that, the online business low-hanging fruit is largely gone. People shop Amazon and eBay first. You are extremely unlikely to build an e-commerce monolith, because Amazon is already all that and more and they are extending their lead faster than you will ever catch up. What's more, going back to Lewis and Dart's teachings: You don't create a sensory or emotional experience that builds a customer base when you focus on e-commerce. You just become a pure delivery tool, and not even as good as the one they were already using. Your business doesn't gain.

So, you might say, what about working with the e-commerce options already out there rather than building our own? You can join an aggregator like TCGPlayer through Crystal Commerce. There is certainly some cash flow to be achieved from that. But problems abound. You give them a cut of your juice, and you don't keep full control over the customer relationship. Just ask anyone who has sold a card where a fussy buyer thinks it's lightly played rather than near mint. Or a card spikes and you get oversold, and your escrow is held until you untangle the mess. Plus, since you're on an aggregator, you're literally competing with your own customers right there on your website, all in a race to the bottom dollar. Thanks, but no thanks. Many stores depend on this vector for cash flow because revenue grosses can grow to considerable size. They rarely recognize how inefficient it is at earning profit, and how dependent they become on walk-in collection buys to keep the engine fueled. The day the average grinder realizes how much EV he loses living from deck to deck and actually has the discipline to keep the cards he buys, the gig is up for the TCGPlayer-dependent storefronts.

Right now 100% of DSG's online sales are through eBay, and are virtually all overstock or closeout merchandise. The fee structure is tolerable and rewards us for going mono-channel with them. We've become very proficient at the mechanics and how to reduce costs within them. And there's a wide addressable audience, albeit not as huge as the audience Amazon boasts. Volume is good and profit is healthy. Even when we're just clearing something at cost, it's worth it because it clears fast and we can then reinvest that money into newer and more popular merch. The tool works for us, rather than us working for it.

Once RMS is in place and I have time to work on an integration module, our website will indeed offer shopping. However, I fully expect the primary usage to be event pre-registration, as it was during that brief period of time when Light Speed's web integration was actually working, and before they "upgraded" their system to where it threw Error 500 at us any time someone wanted to make a purchase. Event pre-registration was a glorious use of web sales and one I look forward to having back. Beyond that, I see no qualm with using the website as a repository for deep stock, anything that's more likely to find a niche buyer somewhere out of town than appeal at the shelf level to a walk-in customer. Singles for non-Magic TCGs and CMGs (collectible miniatures) come to mind, as well as deep comics stock. In each of these cases we have a chance to reach a customer cohort that either plays in our store or is looking for merchandise that's well off the beaten path. In both cases, therefore, we have a chance to create an emotional connection. In the former case, a sensory connection as well. I bet I could bridge the sensory part to our remote singles buyers too -- Paradise Arcade Shop in Hawaii ships macadamia nut cookies, locally sourced, to anyone who buys hardware from their web site. I'm sure there's an analogue in our trade, even if it's just a pack of DSG-branded sleeves or something.

So, Steve, I hope I reached your question about how important I think a customer-facing website is. I believe it has been supplanted by social media for promotional purposes, but that it can still be part of a nutritious breakfast if a store has a cogent, relevant, and meaningful e-commerce offering that's more than just conventional mail-order. And I hope when we have our new permanent website in place, that you'll find it useful and worthwhile. Thanks for asking!

I don't have a specific topic in mind for next week, so any readers who would like me to riff on some other subject, go ahead and send me some feedback from our website (hah!) from the Contact page. That link is www.desertskygames.com. Have a great week!